At a Senate Banking Committee hearing with the nations’ 6 largest bank CEOs, U.S. Senators Sherrod Brown (D-OH) and Jack Reed (D-RI) announced their intent to reintroduce legislation that would eliminate access to credit for millions of Americans by implementing an annual percentage rate (APR) cap of 36 percent on consumer loans, Online Lenders Alliance Executive Director Andrew Duke issued the following statement:
“In trying to justify his proposed rate cap legislation, Senator Reed once again cited the Military Lending Act and claimed that the need for such a cap had been exacerbated by consumers’ experiences during the pandemic.
“While many Americans struggled financially during the last year, the data clearly shows that they didn’t struggle with installment loans. The Consumer Financial Protection Bureau’s Consumer Complaint database annual report showed that installment loans made up less than 1 percent (0.7%) of consumer’s complaints in a year that saw a record increase in complaints in almost every other category.
“Furthermore, research shows that too many servicemembers’ financial situation has gotten worse since the enactment and expansion of the Military Lending Act – not better. We should not be forcing the unintended consequences that the MLA has wrought onto American consumers at large.”
Senator Reed tried to corner the bank CEOs on his rate bill by asking for their support, which received a general response of needing time to review and understand the consequences.
“I can save everyone a bunch of time here – legislation capping APRs at 36 percent would cut access to credit for the millions of American consumers who use, demand, and are satisfied with short-term, small-dollar credit products. It is even more confounding that this bill is being introduced when a recent study found that restricting or banning certain lending products is likely to harm borrowers.
“Furthermore, I would also caution the banks about getting drawn into this overtly political debate over the APR on short term, small dollar loan products when they are under heavy criticism for collecting billions of dollars in revenue over the last year from overdraft fees – which by some estimates carry APRs of 17,000 percent.
“Millions of Americans earning working class wages have difficulty obtaining credit from conventional sources like banks or credit unions, and they are able to find a financial lifeline through fintech. Others simply enjoy the convenience and timeliness that these online products offer when financial needs arise. Cutting consumers off from these products only hurts their financial well-being.”